COMMENTARY: Profit from Patience

Our methodology at www.markettamer.com allows the trader to reposition trades gone badly so that you can optimize the new trend.  The question asked many times is “When and what is a new trend?”  The evaluation of what constitutes a trend change is somewhat discretionary.  So, I have put together a few tips to help you to determine when an adjustment may be considered.

1. When a break and close above/below major areas of support/resistance on strong volume.
2. Support and resistance are most significant when there is a confluence of indicators such as trend lines, major moving averages, Fibonacci levels, chart patterns and candlestick patterns.
3. Be patient.  If you are in too big of a hurry to adjust it can end up being detrimental to your position.  If you are patient and wait for confirmation on the move prior to taking action, you will generally be better off.  For instance, you may have a stock that is going down hard but has not yet closed below support and you begin to panic and add debit to the trade by buying Puts only to see the stock retrace yielding a loss on the adjustment.
4. Don’t adjust until the last 15-20 minutes of the trading session.  By doing so, you will be relatively sure that the trading day will close above/below your predetermined area of resistance/support and you are much less likely to be whipsawed.
5. Assess the risk and reward of the contemplated adjustment.  For example, if you buy Puts to protect a bearish move and other support resides just below the initial level of broken support, the room for the stock to continue its downward move has diminished and the cost of purchasing the Puts may not be justified by the potential risk/reward.
6. The presence of strong volume on a move through support/resistance is crucial.  Volume is analogous to the fuel that drives your car.  You may cross the finish line and get to your destination but your may not have enough fuel to get to the next town.  If volume is high, that is the same as having a full tank of gas and the ability to continue the directional move with momentum.

The market will try to “Shake You Out” of your position and force you to make unwarranted, premature adjustments.  If you practice patience, you will profit. Best, Robin

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